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Where Print and Digital Meet

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The era of Newsprint as a dominant and highly profitable form of news delivery and …

The era of Newsprint as a dominant and highly profitable form of news delivery and
advertising revenue has been forever changed. This paper will examine 4 different
business models with the goal of providing recommendations on the path forward in the
digital age.
Each model will be put through a series of tests and analysis. For each business model
market research will be examined to assess; market size, demand, price sensitivity,
perception of the value proposition, strength of differentiators, and other important
market product based elements. Assessing each from a competitive standpoint using
Michael Porters analysis of the five forces. Finally we will examine how each of these
models affects the current Competitive Advantage held by the firm.
The firm that this paper will use for analysis and testing of models is the Pacific
Newspaper Group, a devision of Canwest Publishing LP. This company was selected
due to the nature of their current delivery strategy, its position in the market, and the
availability of information.
Based on the Model Comparison table which examined a number of potential strengths
and weaknesses pared with the information which came from analyzing what effect each
model would likely have on the Company’s two primary Competitive Advantages there is
a clear favorite among the models. The one which has emerged as the most likely to
succeed is the Hyper-Local Model.
However, the Hyper-Local Model alone is not enough to solve the current problem that
the Newspaper industry is facing. The revenue potential which comes from the increase
in Page Views is still not likely to be enough to compensate for the losses in print
advertising revenue.
Therefore it is recommended that the Pacific Newspaper Group proceed with the Hyper-
Local Model and the Mobile Model. Due to the limited negative effect that the Mobile
Model will have on the two Competitive Advantages’s and because of its positive cash
flow forecasts it is certain that these two models will not conflict with each other.
Moreover, there will likely be synergies found in the two models.

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  • 1. Industry ProjectMBA Part-time Cohort 6Robert H. Lee Graduate SchoolThe Sauder School of Business University of British Columbia Sunday, April 4, 2010
  • 2. ! !Table of Contents Executive Summary 4 Introduction 5 Background 5 Company Background 6 The Problem 8 The Models 8 Model Number One - Pay Wall 8 Concept 8 Rational 8 Implementation Requirements 9 Market Research 10 Business model 13 Feasibility Estimate 14 Challenges 14 Opportunities 15 Model Number Two - Hyper Local Strategy 15 Concept 15 Rational 15 Implementation Requirements 16 Market research 18 Business Model 20 Feasibility Estimate 21 Challenges 21 Opportunities 21 Model Number Three - Mobile Solution 22 Concept 22 Rational 22 Implementation Requirements 24 Market Research 25 Business Model 26 Feasibility Estimate 26 Challenges 26 Opportunities 27Where Print and Digital Meet Ian Cruickshank 2 of 37
  • 3. ! ! Model Number Four - eReader or digital reading devise 27 Concept 27 Rational 28 Implementation Requirements 28 Market research 28 Business Model 30 Feasibility Estimate 30 Challenges 30 Opportunities 31 The Comparison 31 Competitive Strengths and Weaknesses 31 Effect on Competitive Advantage 33 Competitive Advantage #1 33 Competitive Advantage #2 33 Model 1 Pay Wall vs. CA’s 33 Model 2 Hyper-local vs. CA’s 34 Model 3 Mobile vs. CA’s 34 Model 4 eReader vs. CA’s 34 Recommendations and Conclusion 35 References 37Context specific to this document:Within this document the term User and Users should be taken to mean consumers ofdigital and/or printed news and information. The terms Firm, Company should betaken to mean the Pacific Newspaper Group or Canwest Publishing LimitedPartnership. The term Newspaper.com refers to any newspaper online product.All dollar figures are in Canadian currency unless otherwise stated.All terms in BLUE are live links to the associated document online. Thank you: Thanks to Hunter Madsen, Regional Vice President of Digital Media: Pacific Region, for your assistance in the development of models and assumptions contained within this document. Thank you also for your guidance, mentorship, and friendship. Thanks to Rami Lama for your assistance in the development of the Mobile Model. Special thanks to my incredible wife Amber Dawn Cruickshank, without which none of this effort would be possible or worthwhile.Where Print and Digital Meet Ian Cruickshank 3 of 37
  • 4. ! !Executive SummaryThe era of Newsprint as a dominant and highly profitable form of news delivery andadvertising revenue has been forever changed. This paper will examine 4 differentbusiness models with the goal of providing recommendations on the path forward in thedigital age.Each model will be put through a series of tests and analysis. For each business modelmarket research will be examined to assess; market size, demand, price sensitivity,perception of the value proposition, strength of differentiators, and other importantmarket product based elements. Assessing each from a competitive standpoint usingMichael Porters analysis of the five forces. Finally we will examine how each of thesemodels affects the current Competitive Advantage held by the firm.The firm that this paper will use for analysis and testing of models is the PacificNewspaper Group, a devision of Canwest Publishing LP. This company was selecteddue to the nature of their current delivery strategy, its position in the market, and theavailability of information.Based on the Model Comparison table which examined a number of potential strengthsand weaknesses pared with the information which came from analyzing what effect eachmodel would likely have on the Company’s two primary Competitive Advantages there isa clear favorite among the models. The one which has emerged as the most likely tosucceed is the Hyper-Local Model.However, the Hyper-Local Model alone is not enough to solve the current problem thatthe Newspaper industry is facing. The revenue potential which comes from the increasein Page Views is still not likely to be enough to compensate for the losses in printadvertising revenue.Therefore it is recommended that the Pacific Newspaper Group proceed with the Hyper-Local Model and the Mobile Model. Due to the limited negative effect that the MobileModel will have on the two Competitive Advantages’s and because of its positive cashflow forecasts it is certain that these two models will not conflict with each other.Moreover, there will likely be synergies found in the two models.Where Print and Digital Meet Ian Cruickshank 4 of 37
  • 5. ! !“In the broadest, deepest worldwide economic downturn since the Great Depression,newspaper revenue streams are collapsing, forcing a rethinking of business models that, formany, seem as familiar yet as outdated as rotary telephones. With great change, though,comes great opportunity.”-INMA, Feb 2009: Turning danger to opportunity: Expediting your newspaper’stransformation during a crisis economyIntroductionThe era of Newsprint as a dominant and highly profitable form of news delivery andadvertising revenue has been forever changed. This paper will examine 4 differentbusiness models with the goal of providing recommendations on the path forward in thedigital age.Each model will be put through a series of tests and analysis. For each business modelmarket research will be performed to assess; market size, demand, price sensitivity,perception of the value proposition, strength of differentiators, and other importantmarket product based elements. Assessing each from a competitive standpoint usingMichael Porters analysis of the five forces. Finally we will examine how each of thesemodels affects the current Competitive Advantage held by the firm.The firm that this paper will use for analysis and testing of models is the PacificNewspaper Group, a devision of Canwest Publishing LP. This company was selecteddue to the nature of their current delivery strategy, its position in the market, and theavailability of information.BackgroundFor over 500 years newspaper has been a consistent medium of communication in theworld, The first English newspaper by today’s standards was the London Gazette of1666. 1704 saw the first newspaper advertisement, an announcement seeking a buyerfor an Oyster Bay, Long Island Estate, is published in the Boston News-Letter. In 1751,John Bushell published the Halifax Gazette, the first Canadian newspaper. In 1856 thefirst full-page newspaper ad was published in the New York Ledger. Large typenewspaper ads are made popular by photographer Mathew Brady. 1Since those early days the growth in newspapers and the newspaper business has beenmassive. For the year 2009 and 2010 ZenithOptimedia predicted global ad spendinggrowth will be 0.5%, taking spending up to $447 billion. Formally, newspaperadvertising held the lions share of marketers ad dollars. With the introduction of TVand Radio, newspaper saw erosion of their market share but the degradation of thatmarket share has been minimal as compared to what is currently being experienced. 21 http://adage.com/century/timeline/index.html2 Global Ad Spend to Inch Upwards 0.5% in 2010: Zenith Adweek.Where Print and Digital Meet Ian Cruickshank 5 of 37
  • 6. ! !According to Group M “Interactive media will represent nearly one of every five dollarsspent by marketers on media in the U.S. next year, according to their estimatesinteractive media, primarily online, will represent 17% of the U.S. advertisingmarketplace in 2010, up from 15.4% in 2009. 3This compared to the table to the right,produced by eMarketer, which estimates US Adspending on Internet products will surpassNewspaper spending in 2011. These massiveshifts caused by the changes in technology haveensured that the Newspaper Industry will neverbe the same. The time has come for a majorparadigm shift. With all of the contentdistribution methods now at the disposal of thenewsmaker, Newspaper companies need to shifttheir thinking away from the paper and intonews and content distribution. The printedword is now simply one of the many options. 4The ideal which Newspaper companies arecurrently striving for is well contained in thiscatchphrase often used by Denis Skulsky, CEOCanwest Publishing LP: “We deliver the contentpeople want, when they want and in the waythat they want to receive it.” Skulsky isreferring to the content methods such asprinted word, digitally on ones computer, on their mobile phone, or on an eReaderdevice. This is the new age and the new paradigm of news publishing.Company BackgroundThe Pacific Newspaper Group (PNG) is the publisher of two daily papers, two websites,and two mobile optimized websites. These news organizations are: The Vancouver Sunfounded in 1912, and The Province founded in 1898.In 1958, the Sun and the Province joined to create the Pacific Press in response to therising costs of producing newspapers. First the papers merged their mechanical andfinancial departments, then they both moved into the Pacific Press Building onDecember 27, 1965.In November 2000, Canwest announced its acquisition of the Southam newspaper chainfrom Conrad Black, in order to pursue a media convergence strategy. Canwestexecutives believed this acquisition would enable a single reporter to file stories for3 GroupM: Interactive Overtakes Newspaper Ad Spending by Joe Mandese, Thursday, June 25, 2009, 8:15 AM4 Jack Myers Media Business Report, “Advertising & Marketing Investment Forecast 1998 - 2012Where Print and Digital Meet Ian Cruickshank 6 of 37
  • 7. ! !newspapers, TV, and the Web, however media regulations enacted in the subsequentmonths prevented the Company from achieving their intended efficiencies. 5Over the last ten years digital media has greatly improved in its efficiency and usability.As a result of these improvements and the overall growth of internet Users nationallyand globally, the use of news and information websites has also greatly increased. Thenew strategy employed by each of the newsrooms within the aforementioned newsorganizations is a “Web First” delivery method. Breaking news is delivered first on thewebsite for personal computers and mobile devices, then in depth reporting andanalysis is delivered in the daily printed product.For many years the changes in the publishing industry have been imminent. Since 2006PNG has see a massive change in its business. While readership numbers haveremained consistent for the Vancouver Sun and The Province, circulation has fallen andpopulation growth has resulted in a percentage decrease in market reach. The printproduct has changed from a market reach of 90% to one of 70%. Conversely readershipof the Company’s online product has grown tremendously. The growth in thereadership of news and information websites overall has also grown exponentially. InQ4 2008 Ipsos Reid found that 88% of the online audience had visited a news andinformation website in the last 7 days. 6The change in market share has resulted in a change in revenue. The first part of thebusiness to change was the classified division. With the emergence of Craigslist, Kijiji,and other free listings sites, classified liner ads are verging become a thing of the past.A section of the paper which used to be 8 to 12 pages daily has been reduced to 1 or 2.Regular advertising has also seen it’s fair share of change. The largest drop in printadvertising revenue occurred over the last 12 months. A combination of marketperception, affected by stories of newspaper publishers closing their doors in the UnitedStates, and the stock market crash of October 2008; the ad revenue of fiscal year 2009was the worst decline on record. PNG posted close a ~50 million dollar decline in adrevenue from a ~180 million dollar fiscal 2008 to ~134 million dollars in fiscal 2009.Profitability was maintained with diligent cost cutting and expense management.In fiscal year 2009 another record was set; this was 140 percent growth in online displayadvertising revenue. The growth was from a one million dollar year end total in fiscal2009 to a 2.4 million dollar year in fiscal 2009. In the current fiscal year the sales werebudgeted at 3.2 million and they have recently been re-forecasted with the expectationof hitting 3.6 million dollars. While this double and triple digit growth is excellent, 3.6million is in no way able to offset the 50 million dollars in lost revenue. These changesare not sustainable.5 http://en.wikipedia.org/wiki/Canwest6 The Ipsos Canadian Inter@ctive Reid Report, Canadians Internet users (n=2,520), Q4-2008Where Print and Digital Meet Ian Cruickshank 7 of 37
  • 8. ! !The ProblemThe current business model at the Pacific Newspaper Group has been carefullyexamined and proven to be unsustainable. With declining circulation and and decliningad revenue from the printed product, PNG and its local daily newspapers are at risk ofcollapse within five years if major changes are not executed. The remainder of thispaper will examine four business models and make recommendations on what directionPNG should move, in order to change their business and best manage the digitalenvironment.Any one of the following models will likely not be enough to mitigate the current lossesin revenue. It is more likely that a combination of the following as well as additionalmeasures will be required to solve the current issues.The ModelsModel Number One - Pay WallConceptJournalism Online is a company formed by Stephen Brill, Gordon Crovitz, Leo Hindery.They believe that the solution to the current difficulties is to band together in a unitedfront of newsmakers and to establish a Pay Wall access to the news they produce. 7RationalThe perceived Competitive Advantage is a model which says - we have the best ofsomething and we’re going to charge for it. Canwest has built a sizable dedicatedglobal audience online relative to its print circulation, however the current onlineadvertising revenue of $7.7 million among the National Post,Vancouver Sun, and theRegina Leader Post is modest compared to the 2.6 million average monthly UniqueVisitors. Among these three newspapers, their websites yield approximately $3 per yearper unique visitor, average for the newspaper industry, but low relative to printadvertising returns. Monetizing traffic from outside Canada via advertising alone ischallenging. By converting a small proportion of the most engaged online Users tobecome paying subscribers, Canwest and PNG will generate incremental earnings of$3.8 million in the first year and $11.7 million in the second year.Beyond the new digital revenues, the print edition of Canwest’s papers will benefit fromhaving a deeper direct relationship with an increased number of print subscribers, dueto the number of new “bundled” print and online subscribers.The Pay WallExample from MoneyWeek MagazineSixty per cent of the magazine content stays behind the subscriber paywall for onemonth – this is cover stories and in-depth articles. The remaining 40 per cent, the freecontent, is the magazine’s latest news and comment including their daily email, Money7 Journalism Online - Concept Plan, Concept designers: Stephen Brill, Gordon Crovitz, Leo HinderyWhere Print and Digital Meet Ian Cruickshank 8 of 37
  • 9. ! !Morning, and their blog. After month after publication of the magazine the restrictedcontent also becomes available for free so that it can be indexed by search engines. 8Example from the Financial TimesThe Financial Times currently gives readers 10 free articles a month before they arerequired to pay for access. The CEO, Mr. Ridding, said the site would add a new form ofpaid Web access next year involving micropayments (Micropayments are financialtransactions involving very small sums of money.) for individual articles, something thatWall Street Journal executives are also said to be considering. That way readers wouldbe able to buy individual articles in lieu of subscribing. 9Example form The Standard Times (a publication in Massachusetts with similarreadership to the Vancouver Sun)This publication offers a maximum of 10 free articles a month followed by soliciting thepurchase of “Premium Online Access” at a cost of $3.37 per week. All Users are requiredto sign up with a basic login which includes Name, Email, Zip Code, and basicdemographic information.Implementation RequirementsJournalism Online Technology SolutionContent Allow publishers to integrate e-commerce tools into their websites, dividing content into “free” and “paid” areas based on each publishers approach to paid access. Prevents display of content to unauthorized Users.Identity Manages a single User account with a single-sign on across all affiliated websites.8 Paywall Q&A with MoneyWeekʼs Toby Bray, PressGazette, 23 February 2010, By Dominic Ponsford9 The Paper That Doesnʼt Want to Be Free, By ERIC PFANNER, New York Times, Published: August 16, 2009Where Print and Digital Meet Ian Cruickshank 9 of 37
  • 10. ! ! Gives User a “My account” page at Journalism Online for reviewing transactions updating payment information and opening new subscriptions. Collaborates registered User information with affiliates to understand details about Users: location, print subscriber, other publications, demographics, and potential for behavioral targeting data.Payment Integrated technology will manage purchases, taxes, bundling of micro- payments, and other subscriptions. Manage refunds, prorating subscription revenue and collects recurring charges.Reporting Provides data on Users to show what offers in the market work best, tracks financial performance against forecasts and generates analyses to optimize revenue.Market Research The growth of paid online services under the Financial Times banner shows that the paper was right to maintain pay walls at a time when other media companies were yielding to the Silicon Valley mantra that “information wants to be free,” said Tim Luckhurst, a journalism professor at the University of Kent in Britain and a former editor of The Scotsman. “It was pretty lonely out there for a while in paid land,” he said last week. “But it has become pretty clear that advertising alone is not going to sustain onlineWhere Print and Digital Meet Ian Cruickshank 10 of 37
  • 11. ! ! business models. Quality journalism has to be paid for.”John Ridding, the chief executive of The Financial Times. For other online publishers seeking to charge readers, the big question is whether consumers would be willing to pay for general news, as opposed to specialized financial news. Some analysts doubt it, but Mr. Ridding said he thought they might. 10 Only 6% of people in the U.S. pay to subscribe to news online. Do you currently pay to subscribe to any online content? 6% 94% Yes No If asked, 92% would pay on average several hundred per year. 11 Now much money are you willing to spend on online content per month? 8% 13% 10% 24% 21% 24% None Up to $5.00 Up to $10.00 Up to $25.00 Up to $50.00 More than $50.0010 The Paper That Doesnʼt Want to Be Free, By Eric Pfanner, New York Times, Published: August 16, 200911 Penn, Schoen & Berland Associates research, presented at All Things Digital Conference. May 2009; broad surveyof US citizens.Where Print and Digital Meet Ian Cruickshank 11 of 37
  • 12. ! ! Conversely when the question is asked in a different way the results seem to be vastly different. Here only 15% say they would continue to use their preferred news site if they began to charge for content. 12 What would you do if your favourite site began to charge for content? 3% 15% 82% Would continue to use it Would find somewhere else Don’t know It is also very important to consider the impact which a Pay Wall has on traffic to a news site. The char below depicts the impact the Pay Wall had on the NBR’s site performance.12“Will Consumers Pay for Online News: Even Those With a Favorite Site Say No” Pew Project for Excellence inJournalism and Pew Internet and American Life Project. 2010, http://people-press.org/news-interest/Where Print and Digital Meet Ian Cruickshank 12 of 37
  • 13. ! !Business modelLooking only at The Vancouver SunCanadian print circulation of 138,570 Monday to Friday circulation of 120,565 for home delivery and 17,305 for newsstands. Saturday circulation of 131,953 for home delivery and 44,297 for newsstands.Canadian monthly Unique Visitors of 704,392, and global 901,000 For modeling purposes, assume annual online subscription price of $60.00 or month-to-month price of $6.00. Micropayments per article of $0.25 with a total of 6 per such User per month. Current online advertising of $1.6 million per year. Current print circulation revenue of $31.4 million per year. Current subscriber retention and acquisition cost of $2.0 million per year.Additional Assumptions for The Vancouver Sun A significant amount of continued free access, but with selected content offered to the most engaged online Users on a paid basis. this approach optimizes advertising inventory alongside high margin subscription revenues. 10% of monthly uniques subscribe within two years. Assumes 10.0% of the global monthly Unique Visitors sign up for an online subscription by year two. Subscriber conversion breakdown assumes 47.5% annual, 47.5% month-to- month and 5.0% micropayment. Total online subscribers at the end of two years is 90,075, counting people who buy annual or monthly subscription or a single article through micro-payment. 70,439 Canadian subscribers and 19,636 Global subscribers. Assumes a 90% subscription renewal rate. Overall Page Views decrease by 12.2% at the end of year 2. A 15% decrease in non-subscriber Page Views is offset by paying subscribers having 25.0% more Page Views per User than non-paying Users. A 30% higher CPM for pages viewed by subscribers produces and overall online advertising revenue decline of 9.6%. Cost of sales for advertising is 20%. Journalism Online commission of 20% of subscription revenues net of credit card fees of 3.5% Adding a paid strategy for selected online access, the bundling online and print subscriptions. Providing a discount incentive for those who buy both yields a 3.8% increase over the two years in print subscription circulation revenue.Pro Forma Financial Summary$CAD in thousands unless otherwise stated Year 1 Year 2Incremental Revenue Print Circulation Revenue Increase $419 $1,189 Online Net Subscription Revenue (1) $826 $2,370Total Increase in Revenue $1,245 $3,559Decrease in print subscriber acquisition cost (2) $203 $203Where Print and Digital Meet Ian Cruickshank 13 of 37
  • 14. ! ! Online advertising revenue decrease -$215 -$152 Cost of Online Sales (3) $43 $30Net Decrease in Online Sales -$172 -$121Total Benefit $1,276 $3,641(1) Net of Journalism Online commission of 20.0% and credit card commission fees of 3.5%.(2) Assumes a cost savings of 10.0% on print subscriber acquisition cost by year 2.(3) Assumes a cost of advertising sales of 20.0%.Feasibility EstimateChallenges Implementation of the system from an IT standpoint. Currently the billing system used by PNG is a legacy system dating back to 1970 which makes merging systems very difficult and costly. To properly measure the effectiveness of the current and future system an complete ERP and CRM should be installed. Potential for incorrect assumptions. There is inherent danger in attempting to “...take a centuries-old business model and apply it to the Web will work, ... we need business models that simultaneously leverage the role of the professional writer/report and takes advantage of community, relationships and the real-time nature of the Web ... some of the fastest-growing games are the social games on Facebook (e.g., Zynga’s products) and these use a hybrid model of free-to-play with the option to pay for virtual goods that enhances your experience. Maybe there’s a lesson there for traditional journalism?” 13 A February 2010 Nielsen study, Changing Models: A Global Perspective on Paying for Content Online, found that only 36% of respondents had paid for—or would consider paying for—an Internet-only news source. In an even more discouraging finding for content owners, an Adweek Media/Harris Poll study noted that only 23% of US Internet Users were willing to pay for online news. Of those, most said they would be willing to part with up to $10 a month, while a smattering were willing to spend between $11 and $20. A negligible 1% of respondents said they would pay $20 and up to access online newspapers. 14 This model has similarities to the attempt made by BMG music to secure its music in a digital age. This was a failed attempt. The digital age requires business leaders to rethink model and incorporate the changes into the model. Best said here by a business man who embraced the change: "acknowledge what the marketplace is already showing us: free exists whether you want to acknowledge it or not. Let’s acknowledge that, use it and do something with it.” Nine Inch Nails manager Jim Guerinot (May 2008)13 A Brief History of Paywalls, by Jon Radoff on NOVEMBER 30, 200914 Paid E-Publishing Content: Books, Newspapers and Magazines, Paul Verna, March 9, 2010Where Print and Digital Meet Ian Cruickshank 14 of 37
  • 15. ! !OpportunitiesFinancial Revenue from all-you-can-read packages. Revenue from special packages and newsletters. Higher margin revenue stream associated with subscriptions. Recurring subscription revenue decreases riskiness of cash flows and improves working capital metrics. Higher valuations and lower cost of debt associated with higher margins and predictable revenues. Diversification of revenue streams. Mitigates cyclicality of advertising sales.Strategic Negotiating power may improve with intermediaries through the combination of multiple publishers under one platform. Information on pricing models that work best for publishers will be shared using aggregated data. Ability to enhance consumer value through bundled pricing options and one- stop-shop subscription website. Change customer expectations that journalism is free on the web. Restore publisher ability to invest in journalism, protecting key asset and competitive advantage. Developing a long lasting and sustainable paid content model.Model Number Two - Hyper Local StrategyConceptAugmenting the existing value proposition available through the currentNewspaper.com model. Currently PNG delivers a high quality news and informationresource in print and online. The Local Digital Strategy would augment the value toUsers by increasing the quantity and quality of local content and resources. Throughthe creation of extensive guides and directories the local User will be given aninformation hub which will provide information for most of ones daily digitalrequirements.RationalThe philosophy which this model is based on is that Users are indiscriminate. They areincreasingly disloyal to their news source. This is demonstrated by the earlier chartdepicting who would leave their favorite site if they began to charge for the content.News content is becoming increasingly commoditiesed. In this model the perceivedCompetitive Advantage is that PNG will be able to capitalize on two factors: its 100 yearold brands (The Vancouver Sun and The Province) as well as its existing power as aneditorial force in the marketplace. PNG’s combined newsrooms are more than threetimes the size of its nearest competitor. This provides a sustainable competitiveadvantage in the ability to produce and manage a massive volume of locally relevantcontent.Where Print and Digital Meet Ian Cruickshank 15 of 37
  • 16. ! !“It’s confusing out there in the information age so let’s put together the local Hub thatmakes it easy. ‘Own Local’ – secure a leading share of local time spent online andadvertising spend – by delivering the news,information and social venues that ourcommunities deem most relevant to their daily lives. For local consumers, ourdestinations will be a ‘must visit’, for advertisers, a ‘must buy’.” Canwest, Local DigitalStrategy DocumentStrategic Objectives Build online revenue quickly to replace lost print revenue by creating a long-term platform for sustainable, high-margin revenue generation. Retain and transition our local print advertisers as they shift to online by capturing a high percentage of their online buy. Preserve, strengthen, & transform the value of our local news brands through an evolved relevance, broadening the audience, using multi-channels. Leverage online to extend the value/revenue streams of our print products while allowing print to remain a core revenue component for years to come which online strategies have responsibility to support. Put the people and tools in place to empower newspapers to “own local” by creating an infrastructure that enables newsrooms, marketing groups and sales organizations to innovate and adapt in order to serve their local customers. Achieved by: Increasing the level of granular information that people need increasing community exchange and input Creating micro-content Augmenting evergreen listings and directories Building out multimedia content Enabling a robust mobile experience Allowing for individual customization Encouraging creation from the communityImplementation RequirementsA complete refitting of local sites to incorporate a large amount of new features enablingthe shift to hyper-local and hyper-relevance The addition of a robust Voting and Commenting tool. Four tiers of database functionality: Community - Ability for consumers to create their own groups. Simple Editorial - enable the newsrooms to create simple databases quickly and easily. Complex Editorial and Guides - Customized databases with functionality specific to the page or topic. Secured - ability to set secure preferences to protect private or personal information. Flexible mapping functions Portable identities and logins from most popular sites (Facebook, Twitter, MSN...)Where Print and Digital Meet Ian Cruickshank 16 of 37
  • 17. ! ! Enable mass sharing and following of any and all information through simple and complex sharing methods (Email, RSS, Digg, dilicious...). Greatly improve search with proper Tagging and Metadata. Allow for Wiki-style community editing. Customization - Enable profiles to be created by Users: Ability to differentiate “level” of Users to determine what degree of editing / access they have. Track and manage their content contributions. Favorites, friends, communities, groups. Personalized content aggregation and mass customization - What does the User like?(similar to iGoogle) Ability for consumers to design and create their own groups: Upload events to a community calendar. Create group forums. Community tools. (Stats tracker for sports teams, manage group distribution lists, track event signup and registration... ) Enable community bloggers held in a space separated for Editorial Blogs. Enable total portability - Mobile access to all key elements for both Users and creators of content. 15So how would this transformation look from an internal/external communicationsperspective. The change is from a model of Reporter only dissemination of informationto a shared conversation - a multi-directional free flowing discussion: Source: Local Digital Strategy Document; Canwest, By Hunter Madsen, Steve Buors et al. March 2010.15 Local Digital Strategy Document; Canwest, By Hunter Madsen, Steve Buors et al. March 2010.Where Print and Digital Meet Ian Cruickshank 17 of 37
  • 18. ! !Market researchAccording to Forrester Research: “Will “hyperlocal” serve the information needs oflocal neighborhoods or communities — offer a viable future for media companiesonline? ... data shows that more consumers care about what’s happening in theircountry than what’s happening in their neighborhood. In addition, there’s a disconnectbetween the sources consumers rely on for local news and information versus thosethey rely on for business listings. This is a huge problem for local TV stations andnewspapers, which bear the cost of content production without reaping the benefit ofclassified ad sales. Companies that are poised to dominate the hyperlocal space willhave three key assets: 1) low-cost, community-generated content; 2) an agile humansales force paired with smart ad sales automation; and 3) mastery of the mobilechannel, which drives local offline interactions.” 16While there is a great deal of importance placed on local content it will be up to PNG toproperly position itself within the aforementioned three key factors. The design of theLocal Digital Strategy does take each of these into account.The following three charts give an indication of the importance of local information andresources. It is clear from these charts that the Hyper-Local strategy will need to besupported by continued Provincial, National and International coverage. Failing in anyof these three areas will result in lost interest and in turn lost revenue.16Is Hyperlocal Hype Or Happening? What US Online Consumers Want From “Local” Media, by Sarah Rotman Eppsand Elizabeth Stark, January 27, 2009Where Print and Digital Meet Ian Cruickshank 18 of 37
  • 19. ! !Where Print and Digital Meet Ian Cruickshank 19 of 37
  • 20. ! !Business ModelIn the digital news business the creation of additional traffic is the near equivalent ofincreasing the revenue stream. Growth in Unique Visitors and increase in Page Viewscauses an immediate increase in sellable ad impressions. With an average of three adunits per page, an increase in Page Views of 10 will equate to and increase in availablead impressions of 30. The current market environment is one where the increase indigital ad sales is growing faster the the increase in Page Views and available adimpressions. Many of Canwest’s digital assets are currently sold out of inventory. Theprimary assumption made in this model is that an increase in Page Views will in turnincrease revenue.Basic Guide ModelGolf GuideAnnual Guide Sponsorship $24,000(includes sponsorship badge, display media (ROG/ROS/RON), contests, ad mail)Enhanced Listing Sales (12 mos.) $24,000(200 golf-related businesses x 15% conversion rates x $500/yr)Annual Revenue From Guides $48,000x 10 markets (35% discount) $312,000Reverse Publishing Opportunities?Overall estimated revenue potentialMetric Current 2010 2011 2012 2013Increase Unique Visitors > 50k 129,000 261,000 393,000 523,000Display Impressions > 1M 56,000,000 113,000,000 170,000,000 226,000,000Annual Revenue > $100k $1,100.00 $3,300.00 $6,300.00 $10,000.00EBITDA - -$240.00 $837.00 $2,300.00 $5,300.00x 1000Detailed Revenue EstimateWhere Print and Digital Meet Ian Cruickshank 20 of 37
  • 21. ! !Feasibility EstimateChallenges How often does the Generalist beat the Specialist? This model proposes the ability to be all things to all people, or does it. The intention is to be all News and Information to all People. This will be a substantial challenge. Current technical skills available to produce the full host of products and platforms. In order to complete this project a great deal of its parts must be purchased or outsourced. This comes at a higher capital cost as well as a higher risk for potential issues. Outsourcing issues - Saxotech is the major partner selected - they will be working very closely with our developers to build a new functions into the site. I detailed Service Level Agreement has been created and will be important throughout the project. While there is no product in existence able to deliver the functionality that we have outlines Saxotech has reduced their pricing to work with our teams. A secondary benefit to the agreement is that future sales of the platform, outside of Canada, with be shared among both parties. This design will be exclusive to Canwest within Canada. Establishment of proper sales channels will be required to fully maximize the advantage created by this platform. This will likely include the expansion of a call centre and the addition of a “Self-serve” ad platform. There is a comparable Ad Sales Platform hosted by the New York Times. Capital Costs - to establish such a platform will have initial cost of approximately $3.2 Million which has been budgeted for in this fiscal year, however the overrun which is likely in an IT project may well cause slowing in the development.Opportunities Currently there is not a well organized local platform for all of the information we would be able to provide the User. This would allow for a first mover advantage. Content - PNG and Canwest hold and create a massive amount of high quality content every day. With the largest news rooms nation wide we are able to continue the development of this content. In each of the markets where Canwest Newspaper.com’s are present they hold the oldest and most recognized news brands. Who better to provide a complete source for information that Users seek. Guides and Directories will be built using the deepest data sets in the market, using up to 40 data points - Example for restaurants: Parking, Kid Friendly, Atmosphere, etc. While aggregating all other reviews and information about the topic. Thus providing a superior product, which would be very difficult to duplicate without a comparably robust news room, and a sustainable competitive advantage. Heavy promotion - but also a qualitatively superior product enabling a viral sale. Using a complete set of Sharing Tools such as Facebook, twitter, delicious, digg and more.Where Print and Digital Meet Ian Cruickshank 21 of 37
  • 22. ! !Model Number Three - Mobile SolutionConceptThe present mobile offering from PNG is two websites optimized for mobile phone use.In late 2009 the launch of m.vancouversun.com and m.theprovince.com was completed.This enabled smart phone Users to access news on the go. Since that date the PageViews on the two sites have been growing exponentially. In this business model theintention is to take the development of these offerings much further. The area of themost growth, aside from mobile search, is the development of Mobile Applications orApps. These small programs downloadable to a mobile phone enable people to accessdata that assist, entertain, and inform them in their daily life. Canwest and PNG willdevelop a complete suite of Mobile Applications for all of its products and keyinformation segments (Example: Sports, Automotive, Travel, etc.) What ever we do andfor all of what we do, we must make it accessible in the mobile platform. This newplatform also provides an arena where consumers are open to paying for informationavailable online. It offers the potential to establish new revenue streams and thenrepurpose them to areas where we are currently unable to charge, such as the the desktop PC.RationalMobile Advertising is set to be the largestgrowth area in the advertising industry. As youcan see from the table to the right all of themajor forecasters agree that the mobileadvertising spending is in a growth pattern.The variance for this growth is a matter of howmany multiples one expects the category togrow by. Forrester Research is the on theconservative side with 2.7 times growth in thenext three years and Kelsey Group is on thehigh side with just under 10 times growth.This model can be considered in a number ofdifferent ways. It can be viewed as a separatetool for the news business, or one to be used intandem with all other business models. TheTable to the right shows the penetrationlevel of mobile phones in the United States.The growth of the mobile phone marketglobally has created a new access toinformation the media companies are wellpositioned to capitalize on. TheSmartphone is the TV of the twenty firstcentury - before long everyone will have asmartphone capable of nearly as much astheir computer. Mobile phone screens areWhere Print and Digital Meet Ian Cruickshank 22 of 37
  • 23. ! !now being referred to as The Fourth Screen (sometimes referred to as the third screen),due to the evolution from Film, to TV, to PC, and now the Mobile. This screen is beingconsidered to be the most powerful of all. Its portability and its ability to intrude intoones life is creating a place where advertisers can now reach their potential consumerscloser to the point of purchase than ever before.DetailsA three pronged approach Advertising Supported Products These content based offerings will provide easily accessible information to Users on the move. Offered in a variety of ways including mobile optimized websites and mobile applications offering the most up to date information on the most relevant topics from the local, national, and international stage. These offerings will be supported by 3rd party advertisers Mobile Creative Services Full service creative design for advertising partners. This offering ads to the competitive advantage which is transferred over from print sales. By providing full design services the Company is able to keep the full budget allotted for each campaign - most providers are forced to pay third party creative houses for design work. Application conception and design services. In the changing market the interest in producing custom applications is high. The limitation comes from ability to execute. Full application, conception, design and build will also be available internally. Complete campaign design and execution based on the ability to deliver across multiple platforms and mobile sites contained in the Company’s extensive digital network.Where Print and Digital Meet Ian Cruickshank 23 of 37
  • 24. ! ! Non-Traditional and Video ad units are also fully available Content Licensing and Subscriptions With the addition of multiple free mobile sites and applications the offering of paid content and applications will also be available. Custom sites will provide more refined content in a more interactive and intriguing way. Custom sites will be available at a competitive cost. Licensing content will enable an additional revenue stream. Due to the cost of producing first hand content many providers are now scraping and serving content readily available online. Our content will be protected from aggregation by creating a licensing model with our mobile partners. The subscription model will allow for the download of full information and full length video viewing.Implementation Requirements Further optimize our existing sites. Build mobile applications for the top three mobile operating platforms; Apple’s iPhone, RIM’s Blackberry, and Google’s Android. With the potential to add less common platforms in the future; Nokia Ovi, Samsung Mobile Applications, LG App Store, Windows Mobile, Sony Ericsson Play Now. Begin with complete news and information applications. Expand to customized applications based around the most commonly used portions of the site. (example: Vancouver Sun Business Application, The Province Sports Application, and custom guide applications such as restaurant and event guides.Where Print and Digital Meet Ian Cruickshank 24 of 37
  • 25. ! ! Offer a basic Newspaper.com applications at no cost and a more robust version at a competitive price. Customized applications would also be provided at a competitive cost. All development can be carried out internally with the exception of a few custom applications. These can be contracted out at a relatively low cost.Market ResearchAll research is pointing to the growth of thisarea, while there are still people who do not feelthe need to acquire a smartphone these arepeople in older demographics. As seen in thechart to the right the number of people who seemobile phones as a necessity is now over 50% inevery age group.The chart below shows the year-over-yeargrowth of the Smartphone category fromNovember 2007 to November 2008.The following quotes further demonstrate this industry growth:Googles DoubleClick Strategic MoveWith its $3.1 billion acquisition, the Internet giant secures entry into the promisingbusiness of display advertising… (Source: Business Newsweek, April 14, 2007)AdMob Said to Talk With Apple Before Google’s $750 Million DealAdMob Inc. was approached by Apple Inc. about an acquisition before the companyagreed to a $750 million offer from Google Inc. … (Source: Bloomberg, November 14,2009)Apple acquires mobile ad company Quattro Wireless for $275 millionApple Inc has acquired Quattro Wireless, as the iPhone maker looks to ramp up itspresence in the mobile advertising arena… (Source: Reuters, Financial Post, January 5,2010)Where Print and Digital Meet Ian Cruickshank 25 of 37
  • 26. ! !The two charts below also help to demonstrate growth of advertising spending in thismarket:Business ModelValuation of a single Custom iPhone ApplicationPotential RevenueTarget Audience (USA): 3,120,000 iPhone usersCapital Requirements: $75,000.00Apple App Store Retail Price: $1.99Sponsorship and Ad Placement: $80,000.00(Assuming value of $40,000 per sponsor x 2)Rationale (Canwest/PNG could recognize): $315,440.00 Revenue in Year 1(Assuming 600,000 downloads-5% of iPhone users)Feasibility EstimateChallenges Ability to produce all products internally as required. While it is currently believed that this is the case, history would dictate that the Company’s ability to produce high quality digital products in a timely fashion is questionable. Competition in the market when entering late. Have consumers mobile habits already been formed - As new as this market is - it is unlikely have consumers will be entrenched in habitual activities, however it will be important to move quickly into this arena. Canadian Adoption rates are lower that our cousins south of the boarder. As noted in a survey completed by Telus and remitted to eMarketer in November 2009 - see chart on the following page.Where Print and Digital Meet Ian Cruickshank 26 of 37
  • 27. ! !Opportunities Willingness To Pay (WTP) is a key factor which will enable the success of this business model. In the current market consumers are less willing to pay for online content found on their PC, conversely they are willing to pay for content delivered conveniently through their handheld devices. While Canwest and PNG are late in entering this market it is still an open field, there is no single provider who is dominating this market. Currently there is not another content provider in the market who could produce these products with the same depth of information that we could.Model Number Four - eReader or digital reading deviseConceptThe most notorious digital device in the market today is Apple’s new iPad. While thisdevice is surrounded by as much humor as it is prophecy, the newest eReader has beencalled the savior of the print industry. According to Matt Kleinschmit: “Even beforeconsumers can even see the new iPad it is already high on their radar with almost 80per cent of Canadians and three out of four people in the US and the UK aware ofApples new device. Kleinschmit said such recognition is almost unprecedented for anew product in the consumer electronics category.” 17 These devices - such as theKindle and Apple’s new iPad - have given Users the ability to read digital printedproducts on a new type of screened device. These devices provide a clear alternative toUsers for their consumption of the written word.Here the model is straightforward, optimize the digital content and distribute it via adigital reading device. The sales model will be similar to that of a contract mobile phoneplan.17Apple iPad expected in Canada April 24, is high on the radar for Canadian consumers, By Gillian Shaw, TheVancouver Sun, 31 March 2010Where Print and Digital Meet Ian Cruickshank 27 of 37
  • 28. ! !RationalWith this new format comes a new opportunity for the monetization of that content. Adigital subscription model. In this model we will explore the option of providingconsumers with an eReader as their “reusable paper”. The offering will be an eReader ata reduced price with a multi year digital subscription.Details Kindle is a model which is currently a usurious option. The publication is made available at Amazon.com at a monthly rate of $14.99 where the revenue split is 30% for the content provider and 70% is kept by Amazon.com. All attempts to negotiate this rate were met with the same response, they do not negotiate revenue splits it simply their terms if you want your content available on their e- reader. While iPad is the newest and most exciting of the available devices a partnership with the likes of Plastic Logic to use their e-Reader may be more cost effective. The Wall Street Journal, USA Today, The Detroit Free, FastCompany, Forbes, CIO Magazine and a number of other Newspapers and Magazines have partnered with Plastic Logic to provide an e-Reader based subscription models. 18 Various digital publications are also partnered with Plastic Logic: All Things Digital, The Huffigton Post, and Neatorama are a few. Decision to be made - Which device to use: due diligence to follow, custom device from Chinese manufacturer may be possible.Implementation Requirements An agreement with Apple (or an alternative provider) direct or via a third party such as a mobile phone provider. Creation of a daily optimized version of The Vancouver Sun and The Province. Development of a subscription model - taken from the mobile phone industry. eReaders will be available at a reduced rate based on the number of years that a User is willing to be contractually invested into the product.Market researchAccording to Paul Verna, Senior Analyst at eMarketer: We won’t know the true impactof the iPad (or other eReaders) for at least a few months, but its success will hinge onthe following factors: How compelling is the reading experience? This will be determined not only by Apple but by the publishers and other developers who create third-party apps. What is the price of a digital subscription, and how does this price relate to an existing print subscription? Pricing will be key for online periodicals. Will Apple be able to create not just the product but the demand for it, as it did with the iPod and iPhone? Or will the iPad be perceived as on oversized, overpriced iPhone? Magazine and newspaper publishers who think they’ll be able to sell subscriptions just because they’re offering their content on a new device might18 Plastic Logic eReader to be used by Detroit newspapers, By Darren Quick, 20:32 March 31, 2009Where Print and Digital Meet Ian Cruickshank 28 of 37
  • 29. ! ! be in for a rude awakening, no matter how “cool” that device might be. People are strapped for cash, and in the coming years they’ll be bombarded with media companies trying to sell them paid content. Only the most compelling, most exclusive, most in-demand content will rise to the top.Quantitative data from Verna’s complete report shows a few more details surroundingthis model: Users are aware of eReader devices but they are less likely to consider the purchase than they are curious about the technology. Sales are certainly increasing, and while this product is in the earliest phase of the Product Life Cycle the entry of a company like Apple may take this category to a new level of mainstream adoption. The most important part of the puzzle is the Users WTP. This chart shows a very low rate as compared to the rates which news providers are hoping to charge for their digital products.Where Print and Digital Meet Ian Cruickshank 29 of 37
  • 30. ! !Business ModelSimilar to a mobile phone subscription model this is a rate structure which will provideincentive to Users with the aid or a multipurpose eReader device. Based on the numberof years that the User agrees to subscribe to the digital product PNG will provide them adevice at an increasingly reduced rate.Basic Device ModelPlastic Logic (Basic Unit) Model No Contract I year Contract 2 year Contract 3 Year ContractCost of the Device $300 $200 $100 $0Contract Rate per Month $10.95 $9.95 $8.95 $7.95Unit Revenue $310.95 $319.40 $314.80 $286.20Unit COGS 150 150 150 150Unit Profit 160.95 169.4 164.8 136.2Adoption Rate 10% 50% 10% 30%Potential Revenue Year 1 Sales Revenue Year 2 Sales Revenue Year 3 Sales RevenueNo Contract 2500 $777,375 7500 $2,332,125 15000 $4,664,2501 year contract 12500 $3,992,500 37500 $11,977,500 75000 $23,955,0002 year contract 2500 $787,000 7500 $2,361,000 15000 $4,722,0003 year contract 7500 $2,146,500 22500 $6,439,500 45000 $12,879,000Unit Sales 25000 $7,703,375 75000 $23,110,125 150000 $46,220,250COGS $3,750,000 $11,250,000 $22,500,000Total Revenue $3,953,375 $11,860,125 $23,720,250Premium Device ModeliPad Model No Contract I year Contract 2 year Contract 3 Year ContractCost of the Device $650 $500 $400 $300Contract Rate per Month $10.95 $9.95 $8.95 $7.95Unit Revenue $660.95 $619.40 $614.80 $586.20Unit COGS 300 300 300 300Unit Profit 360.95 319.4 314.8 286.2Adoption Rate 10% 50% 10% 30%Potential Revenue Year 1 Sales Revenue Year 2 Sales Revenue Year 3 Sales RevenueNo Contract 1,000 $660,950 2,500 $1,652,375 7,000 $4,626,6501 year contract 5,000 $3,097,000 12,500 $7,742,500 35,000 $21,679,0002 year contract 1,000 $614,800 2,500 $1,537,000 7,000 $4,303,6003 year contract 3,000 $1,758,600 7,500 $4,396,500 21,000 $12,310,200Unit Sales 10,000 $6,131,350 25,000 $15,328,375 70,000 $42,919,450COGS $3,000,000 $7,500,000 $21,000,000Total Revenue $3,131,350 $7,828,375 $21,919,450Feasibility EstimateChallenges As mentioned in the secondary research the iPad and other forms of digital readers have yet to be proven as the savior of the print industry. The adoption of this tool will largely decide the success of this model.Where Print and Digital Meet Ian Cruickshank 30 of 37
  • 31. ! ! Gaining a profitable agreement from Apple or any other provider may prove to be difficult. Rogers, an experienced hardware negotiator, proved this during their efforts to build the agreement to launch the iPhone in Canada. 19 Developing the required optimization for the iPad device internally. This will likely require external resources. Perhaps an extension of the current Content Management System agreement with Saxotech. Cannibalizing the printed product and a greater rate. This introduction of a digital solution will almost certainly increase the rate of decline in the current print circulation. Many of the current devices do not allow for standard advertising or flash based advertising.Opportunities Facilitate the inevitable transition to the digital reader without losing the User to a competing brand. Offer another opportunity to view news content in a format desired by consumers - building on the mantra of “All content, All ways. Enable more active ad units which will deliver greater results than the 2 dimensional option. While this is not the case with current eReaders these opportunities may exist in the subsequent devices.The ComparisonCompetitive Strengths and WeaknessesWith Models that are so vastly different how can we compare each as apples when all areclearly quite varied fruits. In this section we will examine each of the 4 potentialopportunities based on their competitive strengths and weaknesses. This examinationhas been carried out through the completion of an extensive table. Specifically theelements below outline the factors which are important to the success of each modelthese characteristics are: Market Size Internal Rivalry Revenue Potential Pricing Buyer Power Cannibalization of Print Demand Supplier Power Resources Required Value Proposition Threat of Market Entry Cost of Good Sold Differentiators Threat of Substitutes From the Model Comparison Table on the following page the four models deliverthis summary. Two are rated as Good: the Hyper-Local Model and the Mobile Model.There is one model which is rated as Fair: the Pay Wall Model. The model which seemsto be the least favorable after comparing the above criterion is the eReader Model. Itreceived a rating of Bad.19 Spat with Rogers leaves Canadian Apple stores without iPhones By Kasper JadeWhere Print and Digital Meet Ian Cruickshank 31 of 37
  • 32. ! !Where Print and Digital Meet Ian Cruickshank 32 of 37
  • 33. ! !Effect on Competitive AdvantageFurther to the Model Comparison chart it is important to measure each of the fourmodels against their impact on PNG’s Competitive Advantage. In fact PNG and Canwestas a whole have two Competitive Advantages. Both of these advantages depend in largepart on Scale. The first is PNG’s ability to gather, process, and disseminate news. Thesecond is its ability to gather, prepare, and deliver Advertising.Competitive Advantage #1News gathering is something that PNG has been doing for over 100 years. In that timethey have developed the scale and processes that allow for the daily news delivery ofhundreds of relevant news stories collated in one, and now multiple, platform(s). Thisadvantage is made up of over 200 Editors, Reporters, and Photographers. These peoplework every day with hundreds of sources each to enable them to garner up to the minuteinformation. The processes which are in place to collate and deliver this information ina clear and concise manner have been refined over and over to the point at which theyare now. Replicating The Vancouver Sun or The Province newsrooms would beextremely difficult for any competitor. Therefore it is a sustainable CompetitiveAdvantage.Competitive Advantage #2Advertising Sales is another part of PNG which has been delivering advantage for over100 years. Today PNG has an Ad Sales Department of over close to 100 Sales People.With a experienced sales management team continually training the sales force todeliver results. The sales team is also supported by 23 Sales Assistants and an AdProduction team of 40 people, inclusive of Creative Designers and Ad Traffickers. Thisteam of people is often solicited by other companies to sell their products in the localmarket. The most recent example is a discussion taking place with Yahoo! Inc. ThisSales team and the relationships that exist with the businesses in the Greater VancouverRegional District are extremely difficult to emulate. Therefore it is a sustainableCompetitive Advantage.How do these four models add to or take away from, these two Competitive Advantages?Model 1 Pay Wall vs. CA’sIn the case of the first CA there is likely to be little disruption. The Pay Wall model willnot negatively affect the Newsrooms of The Vancouver Sun or The Province. It mayeven provide increased revenue which could add resources to each respective property.In the case of the second CA there will be a definite problem. The erection of a Pay Wallwill reduce the number of Unique Visitors and Page Views. This based on earlierdiscussion will reduce available inventory and impede sales. The Pay Wall will damagethe second CA.Where Print and Digital Meet Ian Cruickshank 33 of 37
  • 34. ! !Model 2 Hyper-local vs. CA’sThe first CA, though it will initially be stressed by added content managementrequirements, will not be negatively affected by the addition of more local content.Moreover when the model reaches its positive Network Effect it will be gainingexponentially from User-generated content (UGC). This model will have a positiveeffect on CA number one.The second advantage is going to have some early stress as well. However, properlymanaged, this will soon turn into an benefit to the advantage. Early and continuoustraining on the new products as well as a development of new sales teams to handle lowdollar sales and an automation of micropayment advertising will enable further growthin this advantage. The model will also serve to increase inventory enabling and increasein sales and sales revenue. These are all positive effects on the second CA.Model 3 Mobile vs. CA’sThis will have the least impact of all models on each of the two CA’s. In the case of theNewsroom, they are currently producing content which is easily distributed on currentand future mobile platforms.The sales team will only see benefit in the way of more solutions for advertisersproblems as well as a simple increase to digital inventory. Both CA’s will be affectedpositively by this model - though the positive effects are minimal.Model 4 eReader vs. CA’sOf all four models the eReader seems to have the most negative effects on the currentCompetitive Advantages held by PNG. Currently the content management system isnot producing a format suitable for eReader devices. The newsrooms would each berequired to create a full redesign of the content. This will also serve to reduce thecirculation revenue which is currently a large part of the revenue stream required to fuelthe news engine.The CA of the sales force would also be negatively effected. Currently there is noadvertising in eReader subscriptions. This would reduce the inventory that SalesRepresentatives have at their disposal available. Further, it would begin to reduce thecurrent acceptance level that Users have for advertising in the printed and onlineformat. With newspaper as the most accepted advertising medium PNG would not bewilling to have that benefit eroded. This Model would have negative effects on bothCompetitive Advantages.Where Print and Digital Meet Ian Cruickshank 34 of 37
  • 35. ! !Recommendations and ConclusionThe future of the media industry is as wide open as it has ever been. With theintroduction and refinement of new technologies it is clear that the future is any thingbut clear. The only certainty at this point is that in order to succeed in the newsbusiness, companies like the Pacific Newspaper Group and Canwest need to completelyrethink their business models.In examining these four business’ it is important to consider all which has beenconsidered above and to continue developing the models by examining the local marketsthrough extensive primary research. Over the next few quarters PNG will need to workwith their research partner Ipsos Canada to develop a complete research study ofCanadian metro markets. While assumptions can be taken from American studies, theonly way to garner a clear picture of what is going to be possible in these markets will beto gather the required information personally. It is also ineffective to draw conclusionson models when they are carried out by other companies. Looking at the Pay Wallsuccess of the Wall Street Journal or the New York Times will not translate cleanly toour market and our products. Unfortunately much of the news that we provide hasbecome commoditized. We must now look to new models and new way of providingvalue to Users, value which they are willing to pay for.When deciding on which of the four models to recommend it is important to considerthe irony that two or more of them may be self or mutually canceling - if you decide touse the wrong two at the same time the may cancel each other. Example - the Pay Wallprogram and the Hyper Local model may have canceling effects due to the Page Viewdecrease of the Pay Wall model and the Page View increase of the Hyper-Local model -this may in effect cancel or nullify any gains.While a recent study from the Pew Research Center for the People and the Press foundthat 90% of information on the internet originates at the door of traditional mediacompanies, January 20th, The day The New York Times announced that they would beerecting a Pay Wall the Times Company stock fell 39 cents, closing at $13.31 it hascontinued to fall to a current $11.07 marking a 20% drop. This is a good indication ofhow the markets fell about this decision. 20Based on the Model Comparison table which examined a number of potential strengthsand weaknesses pared with the information which came from analyzing what effect eachmodel would likely have on the Company’s two primary Competitive Advantages there isa clear favorite among the models. The model which has emerged as the most likely tosucceed is the Hyper-Local Model. This model came out of the Table with a rating of:Good. As well it was the only one of the four which had a substantial positive effect onPNG’s two CA’s.20 The New York Times Announces Paid Content Plans For 2011, TechCrunch, by Robin Wauters on Jan 20, 2010Where Print and Digital Meet Ian Cruickshank 35 of 37
  • 36. ! !Is it enough to simply recommend this single model? Will this model be the answer tothe problem that the Newspaper industry is currently facing. Sadly, it is not. Therevenue potential which comes from the increase in Page Views is still not likely to beenough to compensate for the losses in print advertising revenue.This is why the recommendation is to proceed with the Hyper-Local Model and theMobile Model congruently. Due to the limited negative effect that the Mobile Model willhave on the two CA’s, and because of its positive cash flow forecasts it is almost certainthat these two models will work well in conjunction. As well there will likely besynergies found in the two models.Further to this recommendation there are more questions to ask. What other modelsdoes PNG need to examine? A model in which we better reward current subscriberswith a suite of digital products and other benefits. Another model which furtherenhances the solutions that the second Competitive Advantage can exploit, a model inwhich the sales force is equipped with a full suite of digital products inclusive of Searchand Social Media. The frontier is wide open and the future is ready to be written, clearlywe will need reporters and newspaper companies to write that future. As some mightbelieve if there were not a free press to write the future - one might be written for us.“Were it left to me to decide whether we should have a government without newspapers, ornewspapers without a government, I should not hesitate a moment to prefer the latter.” -Thomas Jefferson, 1787.Where Print and Digital Meet Ian Cruickshank 36 of 37
  • 37. ! !ReferencesIn order of appearance within the document:1 http://adage.com/century/timeline/index.html2 Global Ad Spend to Inch Upwards 0.5% in 2010: Zenith Adweek.3GroupM: Interactive Overtakes Newspaper Ad Spending by Joe Mandese, Thursday, June 25, 2009, 8:15AM4 Jack Myers Media Business Report, “Advertising & Marketing Investment Forecast 1998 - 20125 http://en.wikipedia.org/wiki/Canwest6 The Ipsos Canadian Inter@ctive Reid Report, Canadians Internet users (n=2,520), Q4-20087 Journalism Online - Concept Plan, Concept designers: Stephen Brill, Gordon Crovitz, Leo Hindery8 Paywall Q&A with MoneyWeek’s Toby Bray, PressGazette, 23 February 2010, By Dominic Ponsford The Paper That Doesn’t Want to Be Free, By Eric Pfanner, New York Times, Published: August 16,9 & 10200911Penn, Schoen & Berland Associates research, presented at All Things Digital Conference. May 2009;broad surveyof US citizens.12“Will Consumers Pay for Online News: Even Those With a Favorite Site Say No” Pew Project forExcellence in Journalism and Pew Internet and American Life Project. 2010, http://people-press.org/news-interest/13 A Brief History of Paywalls, by Jon Radoff on NOVEMBER 30, 200914 Paid E-Publishing Content: Books, Newspapers and Magazines, Paul Verna, March 9, 201015 Local Digital Strategy Document; Canwest, By Hunter Madsen, Steve Buors et al. March 2010.16Is Hyperlocal Hype Or Happening? What US Online Consumers Want From “Local” Media, by SarahRotman Epps and Elizabeth Stark, January 27, 2009 Apple iPad expected in Canada April 24, is high on the radar for Canadian consumers, By Gillian Shaw,17The Vancouver Sun, 31 MAR 201018 Plastic Logic eReader to be used by Detroit newspapers, By Darren Quick, 20:32 March 31, 200919 Spat with Rogers leaves Canadian Apple stores without iPhones By Kasper Jade20The New York Times Announces Paid Content Plans For 2011, TechCrunch, by Robin Wauters on Jan20, 2010Where Print and Digital Meet Ian Cruickshank 37 of 37